SIMON WATKINS: A nationalised RBS? That's a bankrupt plan

Treasury spinners could not wait to rubbish reports last week that Royal Bank of Scotland could be fully nationalised. It was said that some Ministers believe the best way to get at least one bank to lend to business is to take full control of RBS and force it to open its coffers.

Why is the Treasury so keen to shoot down the idea? Because it has realised, quite rightly, that the plan will not add up.

On paper it would cost the Government about £5billion to buy the 18 per cent of RBS it does not own. In practice, the cost to taxpayers in the broadest sense would be far higher. And, appealing as the idea is at first, it would almost certainly fail in its objective.

Full nationalisation of RBS? It could spark panic in the markets and play havoc with Coalition finances, says Simon Watkins

There are many immediate reasons why taking this action would be dangerous.

It would almost certainly lead to the departure of some senior
management, including chief executive Stephen Hester, which would spark
panic in stock markets.

And it could play havoc with the
Coalition’s finances as all those assets and liabilities held by RBS
came directly on to the official books.

More...

The gain would be that the Government
could order the bank to lend more to businesses, perhaps less
profitably, without being accused of rough treatment of the smaller
shareholders in the bank.

But it would still involve riding
roughshod over EU state aid rules and could prompt legal action from
Brussels and other British banks, which would argue it was unfair for
them to face a state-backed competitor.

Simon Watkins: Nationalising RBS would be expensive and fraught with problems

Some observers might reply that we
should not care about the management of RBS, the markets and the
technicalities of Government accounting. Most of all, they would argue,
we should care nothing at all for the concerns of European authorities
or other bankers.

But even if one takes such an uncompromising view, there is little case for nationalising all of RBS.

If the Coalition wishes to force the
bank to lend, it has a controlling stake and can use it.
That may lead to trouble from smaller shareholders concerned about
profitability at the bank, but it would be as nothing compared with the
storm blown in by full nationalisation.
Setting all this aside, there are more fundamental questions.

First, would we be happy for RBS to
lend more, even if that meant not making a profit?
If the answer is yes, there is no need to nationalise RBS as there is a
much quicker way to inject money into the economy if we don’t care about
a return. It’s called Government spending.

If we want RBS to lend more, but
continue to pursue profitability, we face a different issue. Because to
want this we have to believe the current RBS management is sitting on
money it could profitably lend.
If that is the case, the management is poor and should be replaced with
some better bankers.

In fact, the underlying picture from RBS’s half-year results issued last
week showed a bank going broadly in the right direction in difficult
circumstances.
But if the Government did want to replace the board, its controlling
stake in RBS already gives it the power to do so.

Nationalising the remaining 18 per
cent of RBS is an eye-catching proposal, but as a solution to the
nation’s economic ills it is a complete red herring.

All eyes on London: But will the Olympics deliver a long-term boost?

Long-term Olympic benefit may be a winner - but it will be hard to tell

The Olympics were never going to produce an immediate boom in the weeks of the Games themselves.

With hindsight it is obvious that for
all the extra visitors who have come to London for the Games there are
others who have stayed away to avoid the crush, as have Londoners who
have been bombarded with doom-laden warnings of potential transport
chaos for months in advance.

But the picture is far more
complicated than a glance at Oxford Street suggests. For example, there
appears to have been a mini-boom in shopping malls on the fringes of
London as consumers have gone shopping elsewhere.

Meanwhile there is the long-term value for Britain and London of being the focus of world attention.

The value of this may be hard to
assess but, barring an unforeseen disaster, can only be a benefit.
The nation’s hopes and fears for Team GB have waxed and waned over the
first week of the Games, and will continue to do so over the coming
seven days.

But whether we have won any economic medals from the Olympics will take far longer to judge with any certainty.